Learn more about our Emerging Markets ETF
Key Takeaways:
May was a busy month of earnings. The first
quarter results show an encouraging sign that beyond short-term volatility our
companies continue to grow at noteworthy rates. We briefly highlight some of
the key constituents of our Emerging Markets ETF below:
- Tencent sales increased 25% to $21 billion
during the quarter as it maintained growth momentum across all its core
verticals, including gaming and advertising. The number of users on its WeChat super
app grew 3% to 1.2 billion.[1]
- Alibaba sales jumped 64% as the number of users across
its global platforms surpassed one billion.[2]
While the company paid a one-time anti-trust fine during the quarter, its cash
reserves still stand at over $70 billion.[3]
- In Latin America, Mercadolibre’s growth continued
to accelerate as its sales more than doubled, driven by strong growth in both
its e-commerce segment and its burgeoning payments arm.
- In Southeast Asia, sales of Sea Limited grew by
an impressive 146%, buoyed by strong growth in its e-commerce arm. In a recent
report spearheaded by Google, analysts estimate that the internet economy in SE
Asia could triple by 2025. Sea remains in a solid position to capitalise on
that.[4]
- China's major e-commerce
platforms including JD and Alibaba's Tmall kicked off this year’s 618 mid-year
shopping festival earlier this month. Some of the early statistics are
quite encouraging. Alibaba has seen vendor signups more than double from the
same period last year. Meanwhile JD.com has launched 1 hour delivery across
1400 cities.
- Gojek merged with Tokopedia to create a tech giant
in Indonesia. The combined entity offers everything from e-commerce and food
delivery to car sharing. The new entity, called “GoTo” is expected to IPO
sometime later this year.
- India’s most valuable unicorn and fintech super
app, Paytm, has announced plans to list in November.
Performance Review
Emerging Markets ETF Performance (EMQQ)
|
May
|
12 Month*
|
|
-3.22%
|
54.13%
|
Past performance is no guarantee
of future performance.
Source: Bloomberg, Solactive, HANetf
*12
Month figures based on 29.05.20 -31.05.21.
The Emerging Markets and Ecommerce UCITS ETF (EMQQ) has posted a
trailing 1 year north of 50% as of May 2021.
While May continued the recent
downtrend in performance, the month closed off with a series of encouraging quarterly
results, which suggests that online habits formed during the pandemic will
indeed remain sticky. The leading contributors to EMQQ’s performance CY are Sea
Limited and Netease, posting gains over 27% and 23% respectively. Both
were buoyed by strong results while Netease got an added boost from news that
it plans to separately list its music streaming business in Hong Kong.
The two largest detractors for the first
five months are Pinduoduo and Kuaishou, dropping over 29% and 53%
respectively. While Pinduoduo has briefly stalled after a strong performance in
2020 we expect its robust quarterly results to provide support moving forward.
Sales grew 239% while increasing operating leverage helped improve the
company’s profitability. Meanwhile, growth in Kuaishou’s livestreaming segment has
decelerated, although it continues to make big gains in other verticals.
Past performance is no guarantee of
future performance. Source: EMQQ Global LLC/ Bloomberg.
EMQQ Performance
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
EMQQ Emerging Markets Internet & Ecommerce UCITS ETF (Acc)
|
-3.22%
|
-12.31%
|
3.44%
|
-3.17%
|
54.13%
|
98.59%
|
|
EMQQ Emerging Markets Internet & Ecommerce Index™
|
-3.17%
|
-12.21%
|
3.84%
|
-2.88%
|
55.53%
|
104.90%
|
Past performance for the index is in USD. Past performance is not an indicator
for future results and should not be the sole factor of consideration when
selecting a product. Investors should read the prospectus of the Issuer
(“Prospectus”) before investing and should refer to the section of the
Prospectus entitled ‘Risk Factors’ for further details of risks associated with
an investment in this product. Source: Bloomberg / HANetf. Data as of 31/05/2021
Industry News
First Quarter
Earnings: Below is a snippet of how some of our top companies fared
in Q1 from a sales growth perspective. Both in and out of China, we saw our
companies deliver robust results, suggesting that digital habits from 2020 are becoming
more and more entrenched. Our two largest holdings helped lead the charge. Despite
being one of the clearest beneficiaries of the COVID-19 last year, Tencent
still managed to post sales growth of 25% this past quarter against a strong
base.[5]
Moving forward, management projects revenue growth to accelerate to 30% in 2021.
Alibaba expects a similar rate of growth for this fiscal year. While the latter
had to pay a $2.8 billion anti-monopoly fine during the quarter,[6]
the company still has over $70 billion of cash and cash equivalents on its
balance sheet.[7] Other
results captured below.
For illustrative purposes only. Past performance is no
guarantee of future performance. Source of all data: Big Tree Capital/ Bloomberg.
Data as of 31/05/2021
618 Shopping Festival: Chinese ecommerce companies have become experts at concocting new
reasons to buy things online. May 20 was once just another day, but because of
the date's accidental similarity in Chinese to the phrase "I love
you," it has morphed into a Chinese version of Valentine's Day and
eventually, one of China's biggest online shopping holidays. It is followed by
June 18th (known as 618), which JD.com has designated as a shopping
holiday to commemorate its founding. The multi-week event kicked off in late
May. A series of EMQQ companies from Alibaba to JD are playing
their part by simplifying the process for merchants to participate in the event
and dramatically lowering the delivery times. As a result, the number of
merchants participating in this year’s event have more than doubled and the
consumer reaction looks robust out the gate.
Growing Opportunities
in SE Asia: In Indonesia, ride-hailing and payments giant Gojek agreed
to combine with e-commerce pioneer PT Tokopedia to
create the largest internet company in Indonesia, before seeking a stock-market
debut in the U.S later this year. The combined entity is set to form a
powerhouse in the world’s fourth most-populous nation, encompassing businesses
from car-sharing and fintech to online shopping and delivery. The companies said they will form a
holding company called GoTo through a deal backed by shareholders including
Google and Alibaba. According to a report commissioned
by consulting firm Bain, the internet economy in Southeast Asia is expected to
triple to $300 billion by 2025.[8] That
backdrop provides plenty of opportunity for companies such as GoTo and Sea
Limited.
Meanwhile in India:
India’s largest unicorn, Patym, is solidifying plans to raise nearly $3 billion
in what would be the country’s largest IPO debut.[9] Like Alipay
and Tencent in China, Patym has helped spearheaded mobile wallets and QR codes
in India. Over time it has expanded into a series of other financial services
to help service the needs of India’s huge landscape of small and medium
enterprises. Paytm is expected to join a wave of Indian internet companies that
are expected to list in the next 18 months, including the country’s largest
e-commerce platform Flipkart.
Outlook
The Digital
Revolution Just Getting Started: When McKinsey and Co published a research piece back
in 2012 on the rising emerging market consumer wave, they called it “the
biggest growth opportunity in the history of capitalism”. A hyperbolic claim to
be sure but a statement that planted the seed that lead to the creation of EMQQ
and now the best barometer to providing the evidence for such a claim. Having
posted performance numbers that put the index at the top of its respective
category, we see 2021 as a unique tipping point in this global digital revolution
story. With China providing the lion’s share of growth in the ecommerce and
internet space for the past decade, we are now seeing the second leg of growth
coming from geographies that were slower to adoption but comparably powerful in
population and scale. The likes of India, Africa, Southeast Asia, and South
America will drive the second half of this transformational story as hundreds
of millions have yet to obtain a smartphone.
Gen-Z Will Write
the Next Chapters: This next wave will come from the world’s youth with 9 out of 10 Gen Z
coming from emerging markets. The consumption preferences that will be shaped
by this demographic will prefer not to use cash but mobile payments, prefer
streaming content over any cable provider, watch more esports than traditional
sports, and certainly favour e-commerce over the mall.
Where the Growth
is: Broad based indexes for EM we believe represent a significant value trap
being saturated with SOE’s and consequently depressed valuations with little
growth. The isolated internet & ecommerce names represent some of the
strongest growth rates not just for a few names but the entire sector.
Visit our Emerging Markets ETF fund page here.